Banks' tokenized deposits threaten stablecoins' edge as lenders build payment networks

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Tokenized deposits vs stablecoins

Highlights

Kraken's planned acquisition of Lithuania's Saldo Bank by 2027 and bank-issued tokenized deposit projects in the UK and U.S. replicate stablecoin capabilities for payments.
JPMorgan's JPM Coin has launched on Base and is expanding to Ethereum, enabling bank-issued tokens to work outside closed proprietary systems and challenging stablecoin utility.
Tokenized deposits can pay interest unlike stablecoins, potentially drawing businesses holding large balances, especially with the U.S. GENIUS Act banning interest payouts on stablecoins starting January.

Bank networks narrow stablecoins' advantage

As argued by CoinDesk columnist Alessandro Hatami, founder of Pacemakers and former COO of Digital Banking at Lloyds Banking Group, the strongest challenge to stablecoins may come from banks replicating their core payment features rather than from direct regulatory curbs.

Hatami points to Kraken parent Payward's agreement to buy Lithuania-licensed digital bank Saldo Bank, a transaction that still requires regulatory approval and is expected to close in 2027. The deal follows Kraken Financial becoming the first digital asset bank to receive a Federal Reserve master account in March, while banks in the UK and U.S. are already advancing tokenized deposit projects.

A tokenized deposit is a bank deposit recorded on a blockchain, allowing programmable payments while remaining a claim on the bank. By contrast, a reserve-backed stablecoin depends on the issuer's reserves and redemption mechanisms, while eligible bank deposits can also carry interest and deposit insurance within applicable limits.

Hatami also cites a paper by Capgemini and Quant saying banks can offer around-the-clock transfers without rebuilding their core systems. JPM Coin, JPMorgan's deposit token, has already launched on Base and is expanding to Ethereum, showing that bank-issued digital money does not necessarily have to stay inside closed proprietary systems.

Coordination and regulation shape the market outlook

Stablecoins still retain an advantage in coordination because they already connect wallets, exchanges and applications across markets, while bank-issued tokens remain fragmented. For tokenized deposits to compete fully, banks need shared rules, compatible systems and interbank settlement in central bank money, a hurdle that remains harder than simply issuing a token.

There are signs of movement in that direction. In the UK, seven banks in the Great British Tokenized Deposit initiative have completed pilot transactions using tokenized sterling deposits; in Germany, the Commercial Bank Money Token initiative completed its first live interbank payments in May; and in the U.S., The Clearing House is building a tokenized deposit network backed by 25 banks.

The economics also matter. Major stablecoin issuers earn income from the reserves behind their tokens, while holders usually receive nothing, and the GENIUS Act in the U.S., which takes effect in January, bars issuers from paying interest simply for holding stablecoins. Tokenized deposits can pay interest, which could make them more attractive for businesses holding large balances if they offer similar payment functionality.

Stablecoins still keep some advantages that banks cannot easily reproduce, including self-custody, decentralized finance integration and deep existing liquidity pools. Hatami argues they are likely to survive, but in a more specialized role, especially as regulators and banks determine whether cross-border coordination moves fast enough to prevent bank-led networks from taking a larger share of digital money demand.

Earlier, we reported on the Bank of England warning about AI-driven cyber threats and urging deeper recovery planning for critical banking services.

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